Investment Promotional Financing Facility- a new dimension in infrastructural refinancing

09th December 2011, by Taskin Shakib

Bangladesh Government has taken the Investment Promotion Financing Facility (IPFF) Project to make available debt financing through private sector financial intermediaries for eligible, government endorsed infrastructure projects, to be developed by the private sector. The projects funded (partially) by IPFF, under the privatepublic partnership (PPP) scheme can also be solely developed by the private sector, but has to be identified by the government to be in the public interest. The project seeks to assist the GOB in facilitating new infrastructure projects with potentiality of private sector participation and in developing the capacity of the financial sector for the ongoing provisions of infrastructure finance. Why Private-Public Partnership? Due to the lacking of fund utilization by Government (alone) Private sector solely is not capable enough for infrastructure development investments.

most key concerns of the Government of Bangladesh. Due to aforementioned reasons, the GOB has come up with the plan of PPP. This is one of the key agendas of the GOB and concerned authority of Bangladesh. Overall strategies Investment Promotion & Financing facility (IPFF) has been working since 2006 with two main components: Credit or on-lending component Technical Assistance (TA) component

The development goals of the project reflect key priorities identified by the World Bank Bangladesh Country Assistance Strategy (CAS), namely, To accelerate private-sector led growth To support an integrated approach to rural development, and To strengthen government and build institutions

Credit /on-lending component: The objectives of IPFF project are to make available partial debt financing available through private sector financial intermediaries. The project has successfully completed first phase of its operation by disbursing 100% of its credit line (on-lending) component amounting US $57.5 million (47.5.m IDA+10m GOB) equivalent of 422.23 crore BDT to seven small power plants through different Banks and financial intermediaries. Since the IPFF project has exhausted the credit line component in its third year of operation, and a considerable excess demand for infrastructure exists, a financing agreement (FA) signed on 07/06/2010 between the World Bank and GOB which facilitates an additional financing to tune of 257 million US$ in favor of IPFF of which the credit number (onlending) components amounts for 250 m US$.

The technical assistance (TA): component of IPFF equivalent to US$2.50 million has been contributing to enhanced knowledge and understanding on PPP among the public sector agencies as well as private sector financiers and entrepreneurs

The significance of effective utilization and implementation of infrastructure development projects, especially energy plants is one of the

Functional utility One of the main features of the facility is that at least 30% cost of any approved project should be borne by the entrepreneurs' own source and maximum 70% is to be provided as debt financing; out of which 20% is to be provided by the participating financial institutions (PFIs)

Finance), to the Participating financial Institutions (PFIs) at interest rate 364 days T.Bill+30basis point. The private sector promoter needs at least 25% equity contribution to access IPFF loan. Whereas PFIs need to contribute at least 15% of the project cost and rest 60% may be financed by IPFF. (60+15+25) crore = (Debt+Equity) = 100cr, sot of the entire project.

Fund Flow to Private Investors through IPFF cell and PFI: GoB & WB Request for No objection from WB IPFF Project Bangladesh Bank

IPFF Loans Request for fund

Participating Financial Institutions (PFI) Request for Fund Private Investor Facility Loan, other Fis Loan and Investors Equity

PPP Infrastructure Projects

PFI Loans and IPFF loans

Figure 2: Fund flow to investors through IPFF

IPFF Fund Flow example: (Assuming Investment project term is 15 years, Project cost-100cr, interest rate on Facility Loan W.A.Y of 364 days T.bill+30 basis point) First of all IPFF (Bangladesh Bank) gives 60cr fund (owned by Ministry of